JES International

UOBKayhian on 15 Jan 2014

VALUATION

• JES International (JES) is currently trading at an FY11 PE of 4.9x and P/B of 0.7x (as of end-Sep 13), based on Bloomberg. Its historical average PE and P/B since itslisting in 2007 is 7.5x and 0.7x respectively.

INVESTMENT HIGHLIGHTS

• Potential investment of up to 30% stake in Mineriver Pte Ltd (Mineriver), a Singapore-based company that is the sole shareholder of Xinjiang Feng Li De Yuan Trading Co. Ltd, which holds mineral exploration rights in Xinjiang region in China. The concession area is approximately 21.5 km² with mineral assets that include magnesium oxide, silicon dioxide, iron (III) oxide and nickel. Surface mining (vs underground mining) on this area implies reduced extraction costs and a shorter extraction time.
• Independent report estimates 4.2b tonnes of mineral resources (measured and indicated) based on studies conducted on a 5 km² area. The in-situ value is estimated to exceed half a trillion US dollars, which triggers tranche 2 of JES’s subscription for a stake in Mineriver. When tranches 1 and 2 are cleared, JES will have invested S$67m for a 20% stake, with an option to take up another 10% for S$60m (tranche 3). The aggregate consideration of S$127m will be satisfied with cash and/or issuance of new shares.
• Mine in pre-production phase with Mineriver’s management working to obtain mining rights for the area. This could extend from a few months’ time to 1.5 years. In the near term, management targets to set up its own facilities for the low-capex production of serpentine fertiliser and flux. The former can be used by plantation companies while the latter is a component in steel-making. Mineriver is also in talks with MNCs and government bodies for potential collaborations in developing higherend products.
• Mid-long term strategy may unlock further value as Mineriver considers a possible listing in the future. It will also conduct research and development for products and applications that could be of significance to major industries such as energy, automobile, aerospace, electronics and others. The properties of magnesium make it a suitable substitute for steel and aluminium and an environmentally-friendly source of energy.
• Key risks in this venture include high uncertainty risk, a delay in granting/ nongranting of mining rights and government/ regulatory risks.